Buying an Established Business: Why It's Better Than Starting a Business
There are so many small businesses today and they come with many risks. Buying an established business is a better option. Here's why.
Starting a new business is not easy. Did you know that 50 percent of small businesses fail in the first 5 years?
For this reason, many entrepreneurs choose to buy an established business instead. Franchise opportunities, for example, fail only 17 percent of the time.
There are many advantages to buying an established business and, in many cases, it's a better option than starting one. Read on as we explore the top reasons why purchasing an existing business is a great investment.
Existing Cash Flow and Customer Base
The hardest part of starting a new business is establishing a customer base. Without a steady stream of customers, your cash on hand is minimal.
By purchasing an existing business, you can leverage the prior owner’s hard work. The company has already established itself in the marketplace and there is brand recognition from day #1.
There are processes and procedures in place for servicing customers and delivering a product. Perhaps most important are lessons learned from existing employees and customers. You can learn from the previous owner's failures and so you won't be likely to repeat their mistakes.
Using Historical Financial & Performance Data
Another advantage is inheriting years of financial & performance data. In a startup, you're jumping head-first into the unknown with little existing data to guide you. Everything is a "first," and you just need to make fast, repeat decisions with your gut and hopefully a really, really smart management team. But that cannot ever replace experience.
With an existing business, the company’s financial documents serve as a roadmap for optimizing the business moving forward. You have a baseline and existing trajectory to work off of and improve, and you can evaluate the company’s operating expenses to reduce waste and increase profit margin.
This financial snapshot serves many other purposes. With less uncertainty, your business is more likely to secure loans, and you may be able to attract other investors with an updated business plan.
Purchase at a Discount
If you're buying at multiple inefficient cash flow levels, you are likely to acquire business assets at a significant discount. This is especially true for startups that are overpaying too many employees or purchased a lot of capital equipment.
Social Media Footprint
Nearly every business in the United States has a social media footprint. It is not easy to acquire a robust following or steady web traffic on a blog.
However, purchasing an existing business gives you a head start. Now, you can leverage off of the prior owner’s Facebook or Instagram account.
In addition, there are e-mail marketing lists to inherit. You can start running digital promotions immediately after acquisition. For a startup, prospective customer information has to be collected the hard way, from scratch.
A Recap of Buying an Established Business
There are different ways to start a business. Many savvy business owners prefer to buy an established business over a startup.
The primary reason is taking advantage of all the time and money the prior owner put in. Acquiring business data like financials and email marketing lists goes a long way.
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